Interim Results

Rolls-Royce PLC
23 August 2001



                                                                23 August 2001

                     ROLLS-ROYCE plc INTERIM RESULTS 2001

Rolls-Royce plc announced today interim results for the half-year ended 30
June 2001.

Highlights are:


  * Profit and cash on course

  * Sales up 15 per cent, at £3,042 million

  * Underlying profit before tax on target at £190 million

  * Average net debt reduced by 25 per cent to £940 million

  * Order book and service revenues increased

  * Record order book of £14.9 billion

  * Service revenues up 20 per cent, representing 40 per cent of total
    revenue

  * Acquisitions - integration completed; businesses progressing well

  * Improved operational performance - underlying trading margin up 15 per
    cent

Sir Ralph Robins, Chairman, said:

'These results demonstrate the importance of the strategic changes made by
management over recent years. We have secured significant market success with
our growing range of products and innovative through-life services, and all of
our businesses have good prospects.

'Our order book has increased again to a record level of £14.9 billion.

'We have met our financial targets with average net debt being reduced by 25
per cent.

'The market is challenging. However, we have built a robust company with a
balanced portfolio of businesses, a very strong order book, continuing
improvements in operational performance and highly committed people.

'We continue to expect flat underlying earnings in 2001 and target increased
underlying earnings in 2002.'

Overview

Results for the first half of 2001 were in line with the guidance given by the
company last year. The company's balanced business portfolio delivered an
underlying profit before tax of £190 million, with a strong performance by
civil aerospace offsetting additional costs in the energy business. A similar
mix is expected in the second half. In line with our statement in August 2000,
we continue to expect unchanged underlying earnings per share in 2001.

Strong order intake resulted in a record order book of £14.9 billion at the
half year. A further £1.9 billion of orders had been announced but not yet
signed.

The provision of aftermarket services has always been an important feature of
the company's strategy. It maximises the opportunity in each market sector and
builds on the technology and intellectual property embedded in the product.
Aftermarket services revenues increased by 20 per cent and represented 40 per
cent of sales in the first half.

The company has continued to improve operational efficiency. Good progress has
been made with the first phases of the rationalisation programme, announced
last year, to simplify the business structure and deliver substantial
efficiency gains. Aggressive targets for the reduction of lead times have been
adopted. These are supported by the successful investments in capabilities and
capacity.

Market conditions are challenging. However, Rolls-Royce is a robust business,
with a balanced business portfolio, a strong order book, improved operational
performance and highly committed people. The company has recently completed
its annual review of each of its business sectors and continues to target
growth in underlying earnings and reduction of average net debt next year.

Enquiries

Peter Barnes-Wallis                     Tim Blythe

Director of Financial Communications    Director of Corporate Communications

Tel: [phone]

www.rolls-royce.com



Sectoral review

Civil aerospace: Sales £1,717m; underlying profit before interest £163m

The civil aerospace business performed well as a result of a combination of
factors:


  * Aftermarket sales were strong. The impact of the predicted retirement of
    older engines was offset by higher aftermarket activity in respect of
    other engines, particularly as a result of the phasing of RB211-535 and
    524 aftermarket sales.

  * Engine unit deliveries were up by 40 per cent, largely as a result of
    strong demand for corporate and regional aircraft engines.

  * The timing of engine development programmes resulted in lower research
    and development investment and lower receipts from risk and revenue
    sharing partners (RRSPs).

  * Improvements in operational efficiency contributed to better operating
    margins

Operational highlights included the continuing success of the Trent family.
The Trent 700 and 800 secured new orders; the Trent 500-powered A340-500/600
continued its successful flight tests; and the Trent 900 secured three out of
the first four airline customers for the A380.

The V2500 engine secured 55 per cent of the orders announced for the Airbus
single aisle range. Midwest Express Airlines ordered Rolls-Royce AE3007 and
BR715 engines for the whole of its new regional fleet of Embraer and Boeing
aircraft.

Significant success was achieved with the sale of Total Care Packages.
American Airlines and Continental Airlines committed their existing fleets of
RB211 engines to long-term contracts worth $1.4 billion. Such agreements now
cover 60 per cent of the RB211-535s in service.

Defence: Sales £639m, underlying profit before interest £70m

The defence business is well positioned, with a broad range of programmes. The
phasing of individual programmes is expected to lead to a similar performance
in 2001 to that achieved in 2000. This year, EJ200 engine deliveries, for
Eurofighter, are planned to reach around 40 engines, weighted towards the
second half of the year, and to increase to around 100 engines a year by 2003.

Operational highlights included commitment by European Defence Ministers to
launch the A400M military transport aircraft programme. Rolls-Royce, and its
Spanish joint venture partner, Industria de Turbo Propulsores, will play a
major role in developing the TP400 engine for the A400M.

The Joint Strike Fighter (JSF) programme, in which Rolls-Royce participates,
progressed to short take off and vertical landing (STOVL) flight tests.

Rolls-Royce Turbomeca signed a $1 billion agreement to supply RTM322 engines
for the 399 NH90 helicopters ordered by Germany, Holland and France.

The company is launching 'Mission Ready Management Services', the defence
sector equivalent of Total Care Packages, capitalising on its experience in
the civil sector.

Vickers Defence Systems continued to make a good financial contribution to the
defence business as the Challenger II contract approached completion. It won a
£250 million contract for the supply of next generation engineer tanks for the
British Army.

Marine: Sales £384m, underlying profit before interest £31m

The marine business made good progress in the first half as it continued to
benefit from a broader approach to the marine market, arising from its ability
to offer and integrate propulsion systems in commercial and naval markets.

In the naval sector, Rolls-Royce was selected for the design, manufacture and
supply of propulsors for the Royal Navy's Astute class of submarines. These
capabilities, which were developed in the commercial marine business,
complement the company's position as the supplier of the nuclear steam raising
plant for the submarines.

Rolls-Royce, with its partner Northrop Grumman, was awarded a contract to
supply 12 WR-21 marine gas turbine packages for the first six Type 45
frigates, for the Royal Navy.

Order intake in the commercial sector remained high. The company was selected
to supply a range of equipment, from podded propulsion systems to stabiliser
systems and deck machinery, for the new luxury cruise liner, Queen Mary 2.

Energy: Sales £272m, underlying loss before interest £48m

The performance of the energy business continued to be affected by the
consequential cost of technical issues relating to new products. However, the
oil and gas business is performing strongly and the industrial RB211 continues
to sell well in both the oil and gas and power generation sectors.

The programme to develop the industrial Trent is making progress as the
testing of new combustion systems to address emissions levels proceeds. Market
demand remains strong and the company expects to take new orders for the
industrial Trent during the second half.

The industrial RB211 continued its market success, with projects under
development around the world. Increased demand for natural gas is resulting in
new production and pipeline transportation infrastructure projects. To satisfy
the demand, production of industrial RB211 engines will be increased to around
40 units next year, double the output planned for 2001.

Service problems have been experienced with both the Allen 5000 diesel engine
and the A601 small gas turbine. These problems, which are being resolved, led
to contract provisions of £35 million, which were included in the underlying
loss before interest, in the first half.

The company expects second half trading performance for its energy businesses
to be similar to the first half, after charging higher research and
development costs for the industrial Trent, the Allen 5000 and the A601

Financial Services: Sales £30m, underlying profit before interest £30m

The financial services businesses made an increased contribution, reflecting
their underlying growth and increasing maturity.

Rolls-Royce Power Ventures, the company's power project developer, continued
to benefit from new opportunities arising from deregulation and privatisation
of electricity supplies.

Pembroke Group, the company's aircraft leasing business, became a joint
venture with GATX. The company's aircraft portfolio grew to 101 aircraft,
owned or on order or option, and a further 47 aircraft under management on
behalf of customers.

Rolls-Royce and Partners Finance, also a joint venture with GATX, is the
company's engine leasing business. It increased profits in the first half and
extended its activities to include industrial engines. At the half-year, RRPF
managed 224 engines on lease to 42 lessees in 22 countries.

Financial review

Sales were increased by 15 per cent to £3,042m (2000 £2,641m).

Underlying trading profit, before risk and revenue sharing partner receipts
and net research and development, increased by 35 per cent, to £254m (2000 £
189m). Underlying trading margin increased from 7.2 per cent to 8.3 per cent.

Underlying profit before tax was £190m (2000 £195m). Underlying earnings per
share reduced by six per cent, to 8.16p. These figures reflect the higher
contribution in 2000 from risk and revenue sharing partners, which was more
than usually weighted towards the first half.

The firm order book was £14.9bn (2000 £11.8bn). In addition, a further £1.9bn
had been announced but not yet included in the order book (2000 £1.6bn).
Services represented 24 per cent of the order book.

Gross research and development investment was £270m (2000 £288m). Net research
and development expenditure was £167m (2000 £186m).

Receipts from risk and revenue sharing partners (RRSPs), shown under other
operating income, were £122m (2000 £216m). Payments to RRSPs, charged in cost
of sales, amounted to £62m (2000 £60m).

Ongoing restructuring costs, of £14m (2000 £15m), were recorded within cost of
sales. In addition, exceptional rationalisation costs of £30m were charged as
a part of the £150m rationalisation programme, announced last year, to
simplify the business structure and are not included in underlying earnings.

The taxation charge, at £52m (2000 £20m), reflects the adoption of FRS19. On
the previous basis (SSAP15) taxation would have been £42m (2000 £30m).
Underlying earnings per share, reported under FRS 19, were 8.16p (2000 8.7p).
On the previous basis, underlying earnings per share would have been 8.86p
(2000 9.79p). The guidance on underlying earnings per share, given by the
company, has been consistently stated on the basis of SSAP15.

Capital expenditure was £47m (2000 £139m). Expenditure for the full year is
expected to be weighted towards the second half.

Average net debt in the first half was reduced by 25 per cent to £940m. Net
debt on 30 June was £748m (2000 £1,235m).

The interim dividend is 3.18 pence per share, an increase of six per cent over
2000. The dividend is payable on 7 January 2002 to shareholders on the
register on 19 October 2001. The ex-dividend date is 17 October 2001.

Enquiries

Peter Barnes-Wallis                     Tim Blythe

Director of Financial Communications    Director of Corporate Communications

Tel: [phone]

www.rolls-royce.com



Group Profit and Loss Account

For the half year to 30 June 2001
                                  Half Year  Restated (note 5) Restated (note
                                  to 30 June Half Year to 30   5) Year to 31
                                  2001       June 2000         December 2000
                                      £m            £m                £m
Turnover: Group and share of        3,150          2,807            5,955
joint ventures
Sales to joint ventures              383            315              893
Less share of joint ventures'       (491)          (481)            (984)
turnover
________________________________________________________________________________
Group turnover (note 1)             3,042          2,641            5,864
Cost of sales and other operating  (2,719)        (2,391)          (5,203)
income and costs*
Research and development (net)**    (167)          (186)            (371)
________________________________________________________________________________
Group operating profit               156            64               290
Share of operating profit of          33            30                76
joint ventures
________________________________________________________________________________
Total operating profit               189            94               366

Operating profit before              219            214              511
exceptional item
Exceptional item (note 2)            (30)          (120)            (145)

Loss on sale of businesses           (2)            (3)              (78)
Profit on sale of fixed assets        6              2                1
________________________________________________________________________________
Profit on ordinary activities        193            93               289
before interest (note 1)
Net interest payable    
            - Group                 (35)          (39)              (85)
            - joint ventures        (21)          (16)              (38)

________________________________________________________________________________
Profit on ordinary activities        137            38               166
before taxation
Taxation                             (52)          (20)              (87)
________________________________________________________________________________
Profit on ordinary activities         85            18                79
after taxation and attributable
to ordinary shareholders
Dividends - interim 3.18p (2000      (50)          (47)             (126)
interim 3.00p final 5.00p)
________________________________________________________________________________
Transferred to/(from) reserves        35           (29)              (47)
________________________________________________________________________________
*  includes Other Operating Income    122            216              341
** Research and development (gross)  (270)          (288)            (604)


Earnings per ordinary share (note
3)
Underlying                          8.16p          8.70p            19.38p
Basic                               5.38p          1.16p            5.07p
Diluted basic                       5.35p          1.15p            5.04p



Group Statement of Total Recognised Gains and Losses
________________________________________________________________________________
Profit attributable to ordinary       85            18                79
shareholders
Exchange adjustments on foreign       19            32                30
currency net investments
________________________________________________________________________________
Total recognised gains for the       104            50               109
period
________________________________________________________________________________


Summary Group Balance Sheet
                                      Half Year   Restated Half  Restated Year
                                      to 30 June  Year to 30     to 31 December
                                      2001        June 2000      2000
                                          £m            £m             £m
Fixed assets
Intangible                                835          888            877
Tangible                                 1,732        1,792          1,772
Investments     -      joint ventures     193          175            174
share of gross assets                    1,263        1,003          1,117
share of gross                          (1,070)       (828)          (943)
liabilities
.-other                                    29           31             33
________________________________________________________________________________
                                         2,789        2,886          2,856
Current assets
Stocks                                   1,294        1,335          1,179
Debtors                                  2,442        1,975          2,181
Short term deposits and investments       175          248            142
Cash at bank and in hand                  471          491            498
________________________________________________________________________________
                                         4,382        4,049          4,000

Creditors
Amounts falling due within one year      (265)        (474)          (272)
     - Borrowings
     - Other Creditors                  (2,647)      (2,082)        (2,559)


Amounts falling due after one year      (1,129)      (1,500)        (1,058)
     - Borrowings
     - Other Creditors                   (216)        (184)          (206)


Provisions for liabilities and           (791)        (698)          (720)
charges
________________________________________________________________________________
Net assets                               2,123        1,997          2,041
________________________________________________________________________________

Capital and Reserves
Equity shareholders' funds               2,122        1,995          2,040
Equity minority interests in               1            2              1
subsidiary undertakings
________________________________________________________________________________
                                         2,123        1,997          2,041
________________________________________________________________________________
Reconciliation of Movements in Shareholders' Funds

                                          £m            £m             £m
At 1 January (restated)                  2,040        1,967          1,967
Total recognised gains for the period     104           50            109
FRS 19 adjustment relating to              -            -              2
goodwill
Ordinary dividends (net of scrip         (35)          (28)           (89)
dividend adjustments)
New ordinary share capital issued         13            5              10
(net of expenses)
Goodwill transferred to the profit         -            1              41
and loss account in respect of
disposals of businesses
________________________________________________________________________________
At period end                            2,122        1,995          2,040
________________________________________________________________________________

Summary Group Cash Flow Statement
                                     Half Year to Restated Half     Year to 31
                                    30 June 2001  Year to 30 June  December
                                                  2000             2000
                                         £m              £m             £m
Net cash inflow/(outflow) from           15            (289)           479
operating activities
Dividends received from joint             4              4              13
ventures
Returns on investments and              (31)            (32)           (76)
servicing of finance
Taxation paid                           (24)            (15)           (25)
Capital expenditure and financial       (47)           (139)          (253)
investment
Acquisitions and disposals               48             (44)           (53)
Equity dividends paid                   (31)            (22)           (74)
________________________________________________________________________________
Cash outflow before use of liquid       (66)           (537)            11
resources and financing
Management of liquid resources          (31)            217            324
Financing (share capital and             122            346           (360)
borrowings)
________________________________________________________________________________
Increase/(decrease) in cash              25              26            (25)
________________________________________________________________________________

Reconciliation of net cash flow to
movement in net funds
Increase/(decrease) in cash              25              26            (25)
Cash outflow/(inflow) from increase      31            (217)          (324)
/(decrease) in liquid resources
Cash (inflow)/outflow from              109)           (341)           370
(increase)/decrease in borrowings
________________________________________________________________________________
Change in net funds resulting from      (53)           (532)            21
cash flows
Amortisation of zero-coupon bonds        (1)            (1)            (3)
Exchange adjustments                     (4)            (8)            (14)
________________________________________________________________________________
Movement in net funds                   (58)           (541)            4
Net funds at 1 January                  (690)          (694)          (694)
________________________________________________________________________________
Net debt at period end                  (748)         (1,235)         (690)
________________________________________________________________________________

Reconciliation of operating profit
to operating cash flows
Operating profit                         156             64            290
Amortisation of intangible assets        29              30             60
Depreciation of tangible fixed           90              75            178
assets
(Profit) on disposals of tangible         -              -             (3)
fixed assets
Increase in provisions for               55              90             49
liabilities and charges
(Increase) in working capital/          (315)          (548)           (95)
creditors due after more than
one year
________________________________________________________________________________
Net cash inflow/(outflow) from           15            (289)           479
operating activities
________________________________________________________________________________



Notes
                                     Half Year  Restated Half     Restated Year
                                     to 30 June Year to 30 June   to 31
                                     2001       2000              December 2000
                                         £m            £m              £m
1.   Analysis by business segment
Group turnover
Civil Aerospace                        1,717          1,343           3,150
Defence                                 639            696            1,403
Marine                                  384            340             751
Energy                                  272            217             476
Financial services                       30             22              40
Businesses to be disposed                 -             23              44
________________________________________________________________________________
                                       3,042          2,641           5,864
________________________________________________________________________________
Underlying profit before
interest*
Civil Aerospace                         163            166             332
Defence                                  70             69             154
Marine                                   31             27              67
Energy                                  (48)           (34)            (48)
Financial services                       30             24              56
Businesses to be disposed                 -             (2)             (2)
________________________________________________________________________________
                                        246             250             559
________________________________________________________________________________
*before exceptional and non-trading items

Profit before interest
Civil Aerospace                         151            159             312
Defence                                  69            68              151
Marine                                   14            11              38
Energy                                  (70)          (165)           (191)
Financial services                       29            24              55
Businesses to be disposed                 -            (4)            (76)
________________________________________________________________________________
                                        193            93              289
________________________________________________________________________________
Net assets/liabilities -
excluding net debt
Civil Aerospace                        1,226          1,492           1,116
Defence                                 298            390             261
Marine                                  569            614             582
Energy                                  373            387             449
Financial services                      405            334             346
Businesses to be disposed                -             15             (23)
________________________________________________________________________________
Net assets                             2,871          3,232           2,731
________________________________________________________________________________



 2. Exceptional items

Relating to:             Half Year to 30 Restated Half Year   Restated Year to
                         Jun 2000        To 30 Jun 2000       31 Dec 2000
                               £m                 £m                 £m
Industrial Trent                -               (120)               (120)
                                                                  

Rationalisation - of            -
acquired businesses                                                  (16)

                              
- other                       (30)                -                  (9)

                              (30)              (120)               (145)


3.      Earnings per ordinary share


        Basic earnings per ordinary share are calculated by dividing the
        profit attributable to ordinary shareholders of £85 million (2000 half
        year £18m, full year £79m) by 1,580 million (2000 half year,1,552
        million, full year 1,558 million) ordinary shares, being the average
        number of ordinary shares in issue during the period, excluding own
        shares held under trust which have been treated as if they had been
        cancelled.

        Underlying earnings per ordinary share have been calculated as
        follows.


Half Year to 30 June 2001
                                                      £m       £m     Pence
     Profit before taxation                           137
     Profit attributable to ordinary shareholders              85      5.38
     Exclude:
     Net loss on sale of businesses                    2        2      0.13
     Profit on sale of fixed assets *                 (2)      (2)    (0.13)
     Amortisation of goodwill                          23       23      1.45
     Exceptional rationalisation                       30       30      1.90
     Related tax effect                                        (9)    (0.57)
________________________________________________________________________________
Underlying profit before taxation                     190
Underlying profit attributable to shareholders                 129
Underlying earnings per share                                          8.16

* excluding lease engines and aircraft sold by financial services companies


Restated Half Year to 30 June 2000
                                                      £m       £m     Pence
     Profit before taxation                           38
     Profit attributable to ordinary shareholders               18     1.16
     Exclude:
     Net loss on sale of businesses                    3        3      0.19
     Profit on sale of fixed assets *                 (1)      (1)    (0.06)
     Amortisation of goodwill                         23        23     1.48
     Restructuring of acquired businesses             12        12     0.77
     Energy - exceptional charge                      120      120     7.73
     Related tax effect                                        (40)   (2.57)
________________________________________________________________________________
     Underlying profit before taxation                195
     Underlying profit attributable to shareholders             135
     Underlying earnings per share                                      8.70

* excluding lease engines and aircraft sold by financial services companies




Restated Year to 31 December 2000
                                                           £m     £m    Pence
     Profit before taxation                                166
     Profit attributable to ordinary shareholders                 79       5.07
                                                                           

     Exclude:
     Net loss on sale of businesses                        78     78       5.01
                                                                           

     Loss on sale of fixed assets *                         1     1        0.06
                                                                           

     Amortisation of goodwill                              46     46       2.95
                                                                           

     Restructuring of acquired businesses                  16     16       1.03
                                                                           

     Exceptional rationalisation                            9     9        0.58
                                                                           

     Industrial Trent - exceptional charge                 120   120       7.70
                                                                           

     Related tax effect                                          (47)    (3.02)
________________________________________________________________________________
     Underlying profit before taxation                     436
     Underlying profit attributable to shareholders               302
     Underlying earnings per share                                        19.38

* excluding lease engines and aircraft sold by financial services companies




        Diluted earnings per ordinary share, are calculated by dividing the
        profit attributable to ordinary shareholders of £85m (2000 half year £
        18m, full year £79m) by 1,589 million (2000 half year 1,562 million,
        full year 1,566 million) ordinary shares, being 1,580 million (2000
        half year 1,552 million, full year 1,558 million) as above adjusted by
        the bonus element of existing share options of 9 million (2000 half
        year 10 million, full year 8 million).

4.     Group employees at the period end

                           30 June 2001      30 June 2000      31 Dec 2000
                           Number            Number            Number
Civil Aerospace                 24,300            25,000           24,500
Defence                          7,200             7,600            7,300
Marine systems                   6,500             6,500            6,500
Energy                           5,100             5,400            5,300
Financial services                100               100              100
Businesses to be                   -               1,900              -
disposed
________________________________________________________________________________
                                43,200            46,500            43,700
________________________________________________________________________________


5.     Preparation of interim financial statements


        Throughout these financial statements the 2000 comparatives have been
        restated to reflect the adoption of FRS 19 Deferred Taxation.
        Additionally the Half Year 2000 comparatives have been restated to
        reflect UITF 24 'Accounting for Start-up Costs' and the change in the
        presentation of risk and revenue sharing partnership receipts - both
        of which were incorporated in 2000 year-end financial statements.

        The results for each half-year are unaudited. The comparative figures
        for the year to 31 December 2000 have been abridged from the Group's
        financial statements for that year, after restatement for the change
        in accounting policy described above. Those financial statements have
        been delivered to the Registrar of Companies. The auditors have
        reported on those financial statements; their report was unqualified
        and did not contain a statement under s237 (2) or (3) of the Companies
        Act 1985.

        The interim financial statements for the six months ended 30 June 2001
        were approved by the Board on 22 August 2001.